Coping With Currency Restrictions

[Matiasba]

I believe you are really misinterpreting the situation and are using propaganda words that do not apply to the current scenario. The average argentinian isn't a "speculator" which is a term often used for big players who CAN tip the scale from one side to the other using more complex options. For example the vulture funds that bought bonds at a low value and have been for the last years pushing trials and judges for a positive ruling to recover the face value on those bonds. Those are indeed speculators that are indeed working for gains.

These common people that buy dollars just want their saving to maintain their intrinsic value, not lose buying power due to a constant value depreciation that has been hitting for the last 5 years. This people aren't betting against the peso or something similar. The "dollar fever" started a few years ago when the government decided to kick the peso on the head and kill the stability that we had for a while. Here is an image showing this and this doesn't really take into account the 35% tax or the blue rate which push it even higher. Rembember, is just the official rate that isn't used in anything. People hide from the peso due to its current weakness, they are not causing it.

I wasnt talking of the common people, middle class that buy dollars. I was talking of the people that make money here, lots of money, PESOS, and instead of investing it here they switch it to dollars and bet against the peso. Simply, if you have dollars you want the peso to loose value. Since the moment you have dollars you dont fortify the peso, you make them loose value, and since every rational actor dont want to loose, you re now for a devaluation, where your dollars multiply their value. So I was talking of the people that make money in Argentina, that send the money outside, they play against the peso, clearly. But then we have the middle class people that too play against the peso, going to the dollar. i know the inflation and the dollar is 100 times more stable and solid, but it wasnt always like that. It is a cultural problem.
Since the last dictatorship this country started to think in dollars. If you go to Chile or Brazil, for example, people dont think in dollars, properties are valued in their local money, apartments in reales, etc. Argentina used to be like that, but the last dictatorship imposed values in dollars and after that we did not have stability, hyperinflation, etc, so the dollar continued till today being the currency to talk of.


So, because of inflation, 'common people' keep going to the dollar, as well as the rich, making the peso weaker and weaker, (re)producing the cycle, making people go more to the dollar, etc. If you go to the dollar, you are betting against the country, you re going in the direction of a devaluation, you re going in the opposite direction of fortyfying the peso, you turned into a (small) especulator. Simply because you have dollars and you want to save in a 25% inflation economy.

The perfect scenario to the government, who as me doesnt want a devaluation, is having all this quantity of money spent, not save a penny.

The bottom line here is that the responsibility is not the same for the rich than for the common people. The rich MUST invest in Argentina if they want this country to grow, to get better. They dont invest cause its not stable, and that makes it less stable, so go figure. The money argentine people have outside the country equals to the debt!!

We dont have economic (or any other) state policies, the first two years of every government consist in erase what the government before did. All that mixed with corruption, short term vision, growing maffias, etc. This is the country we have.

About the vulture founds, I ll bet there are more than one argentine there.

 

[Dublin2BuenosAires]

Inflation - maintained to make saving unviable. Result = consumption of local goods and services to prop up protected industries with little in the way of quality or value. They don't want you to save or have assets in viable stable currencies, they don't want you invest in property either, they want all those crappy pesos back out into the boxed off, hemmed in local economy.

They do however want you to not notice that they are filtering money off , converting it and doing all those things they dont want you to do!

Whats worse? Monopoly of profits by capitalist corporations or monopoly of profits by govt and their clientelismo pals.

Kick in the balls vs poke in the eye really. Predictable that the indoctrinated and those on the tit feebly continue to defend them.

 

[dennisr]

Interesting, Exchange rate in neighboring countries: http://www.iprofesional.com/notas/177615-El-blue-est-barato-comprar-dlares-con-pesos-argentinos-en-otros-pases-cuesta-hasta-40-ms

 

[che]

Fighting the "fed" as they say is a bad idea. In Argentina devaluation is an economic policy that works for its mid level buraecrats just perfectly. You cannot fight that which works for those who have the power. For example, for those of you who were here in 2007, 2008, 2009 you'll remember all the old cars on the road. The streets were a disaster. In those days, since we do not drive, we'd wait and wait to try to find a "newer" taxi car with hopes that it would be clean inside and it would be safer in a crash. By 2010 the rumors began of a coming devaluation. Suddenly everytime we stepped to the curb we could find a brand new taxi car to drive us. No looking around. What happened is if I can buy a car today with credit and the currency is losing 30% per year, even as an average joe, I win. My car is actually an asset that gains value. Weird but true. Then there is the 2nd and 3rd apartments many in the middle own. My buddy works for AFIP. Every year he and his co-workers go to Miami in February for the tennis matches. He tells me AFIP picks up the bill. So b/c of his bureaucratic positon he benefits form an annual trip to the US. He could care less about if his fellow country-man can travel abroad. When the official and blue were running together in 2010 he had to buy an apartment fast. He got a special loan from AFIP with 5% interest for 20 years. Evidently many in gov't positions go these loans. Obviously this is not market rate. He bought the new pad. Official rate was around 4. He was so anxious to close. And within weeks of him doing so dollar blue took off. So now he has an apartment with special gov't subsidized loan and a peso that has pratically halfed in value since he bought. Talk about a deal. The rent from that aprtment now is already highly profitable while he has 20 years to apy with devalued pesos. Seems like the devaluation is working just fine for him. He also just bought a new car. 2nd in as many years. And he booked an expensive Italy trip for he and his wife on credit card. All paid for today although they will travel next year. He tells me the days of credit for long term low rates is ending very soon. I have another buddy who works for the pension system. Same story... all kinds of special loan deals. He buys cars for the kids. They have primary residence + 3 others they rent. Bottomline is, it is not useful to fight the fed. Here too many people benefit from the system that enriches those who are tied to it. Those outside it are SOOL. But it works for many as so many work for the system. Entrepreneurs and those who create value acorss the world are no longer middle class. They are lower middle. Govt bureaucrats are the new upper middle as they have access to that which those outside don;t/ It is the natural result of a socialist system. Call it peronism etc, in the US call it capitalist, in europe call it nanny state. Fact is socialism is a proven loser as capital is not allocated efficiently, it is alloctaed tp those who are closest to its creation. Although it is a proven loser the people embrace it as their savor... look at the US> There is now more medical care and insurance freedom in the Argentina than the US> Daily people come on here and complain about life in Argentina. Yet at the same time they defend the US' jounrey into health care... people vpte for the handout everyime. Argentina will not change.

 

[sesamosinsal]

Dollar reserves are declining because of the government's own arbitrary policies, ineptitude, and unpredictability as the only country in the region that's struggling to maintain dollar reserves (except for Venezuela). Devaluation is not necessarily bad, and can actually lead to increased reserves.

This is semi true. The reality is that the region is bleeding out dollars. So, all the dollars are acquired from debt, not production. Brazil, Chile, Peru, Uruguay, etc. are all posting current account deficits as well as trade deficits, some of which are significant, e.g. Brazil. In the medium term, this can be tolerated. However, if we learned anything from Europe in the last decade, years of increasing debt and stagnant GDPs are not exactly a recipe for economic success.

Argentina is not an island. What's happening to Argentina would be happening to any country in this region if it (x-country) didn't have access to international credit markets.

 

[el_expatriado]

So, because of inflation, 'common people' keep going to the dollar, as well as the rich, making the peso weaker and weaker, (re)producing the cycle, making people go more to the dollar, etc. If you go to the dollar, you are betting against the country, you re going in the direction of a devaluation, you re going in the opposite direction of fortyfying the peso, you turned into a (small) especulator. Simply because you have dollars and you want to save in a 25% inflation economy.

Argentina should just go the way of Ecuador and dollarize their currency completely. The mistake that Menem and Cavallo made was still using the peso. If they had gone directly to the dollar instead of 1:1, things wouldn't have blown up like they did and there wouldn't have been a devaluation.

If Argentina used dollars, the government couldn't let spending get out of control (like today). Since they are unable to emit more money they could only borrow as long as foreign lenders were willing to lend. Every once in a while they would default on their debt, but at least we'd have no inflation and less government spending.

Any policy which takes power out of the hands of Argentine politicians and puts it into the hands of consumers or businesses here is a good one.

 

[Dublin2BuenosAires]

Argentina should just go the way of Ecuador and dollarize their currency completely. The mistake that Menem and Cavallo made was still using the peso. If they had gone directly to the dollar instead of 1:1, things wouldn't have blown up like they did and there wouldn't have been a devaluation.

If Argentina used dollars, the government couldn't let spending get out of control (like today). Since they are unable to emit more money they could only borrow as long as foreign lenders were willing to lend. Every once in a while they would default on their debt, but at least we'd have no inflation and less government spending.

Any policy which takes power out of the hands of Argentine politicians and puts it into the hands of consumers or businesses here is a good one.

Yes because currency union between unequal economies always works well....

 

[Matiasba]

Argentina should just go the way of Ecuador and dollarize their currency completely. The mistake that Menem and Cavallo made was still using the peso. If they had gone directly to the dollar instead of 1:1, things wouldn't have blown up like they did and there wouldn't have been a devaluation.

If Argentina used dollars, the government couldn't let spending get out of control (like today). Since they are unable to emit more money they could only borrow as long as foreign lenders were willing to lend. Every once in a while they would default on their debt, but at least we'd have no inflation and less government spending.

Any policy which takes power out of the hands of Argentine politicians and puts it into the hands of consumers or businesses here is a good one.

Being tied to the dollar is not the solution, you loose big capacity of manuevre from the Central Bank, you loose that important tool of monetary policy. It already happened for ten yearss, and we can see it now with the PIIGS and the Euro. Besides, where the sovereignty would be? We are different countries you know, every country should have their own currency, their own money, their own capacity to do whatever they want with that. Being tied to the dollar brought a lot of problems to Ecuador, theyve been wanting to get out for like 10 years and they cant.

Its just too grotesque the political and economic domination by the US Empire if we dollarize the economy. Its like assuming that we re in fact their colony.

 

[nicoenarg]

Situation in Zimbabwe: http://news.bbc.co.u...ica/7995882.stm

I agree with the sentiment of el_expatriado's post, take control away from the politicians. But it is always dangerous to lose control of your own currencies. Really dangerous to have debts in foreign currencies that, when the s**t hits the fan, you're unable to pay. Default and chaos soon follow after that.

I do think Argentina should freeze the peso until such time when people can be educated about economics here.

The problem of inflation was thanks to Isabel Peron (ah those Peronists always rearing their ugly head), and the country's politicians since then (including the military dictators) have used printing excessive amounts of pesos to try and fix their problems. Their solution is simple: Buy people's votes and confidence by flooding the country with worthless pesos and then blame others for the problems created by the government's idiotic policies.

Matias is right though, price controls have worked in the past. In Israel after the Yom Kippur war, the country's economy was going down the drain. The inflation was 450% in 1984, projected to reach 1000% in a year. They enacted an economic plan, which included price controls, which brought the inflation down to 20% in a matter of a couple of years.

But the differences between Israel's plan and Argentina's modelo are many. Some of the points of Israel's economic plan included:

1. Significant cuts in government spending
   
2. Wage controls; deal reached by the government actually talking to the biggest union in Israel; not by calling them gorilas.
   
3. Price freezes, similar to what Argentina is doing right now
   
4. Devaluation of the Israeli shekel, and long term fixed foreign exchange rate policy.
   
5. Curbing the ability of the Bank of Israel (Central Bank of Israel) to print money.

The purpose of the economic plan in Israel was to bring inflation down, not to keep printing excessive amounts of money while blaming the businesses and consumers for inflation. Let's see, can Argentina do something similar to the 5 points I mentioned above?

1. All those para todos programs to buy votes and keep the populace wanting more of the same? Yeah, they're never going to get rid of them.
   
2. Can you actually see the government talking to CGT? Can you actually see the CGT giving up demanding crazy bonuses and crazy salary hikes?
   
3. Prize freezes have been in place since the pistol wielding boludo introduced them. There hasn't even been a single dent in the craziness of inflation which according to various estimates is going over 30% now.
   
4. Devaluation of the peso is taking place as we speak.
   
5. HA HA HA. The Central Bank here is the President's personal money printing machine. Them thinking to slow down printing money? Yeah, good luck with that.

To briefly read up on Israel's plan, go here: http://en.wikipedia....bilization_Plan. The two papers linked to in the Wiki article are an amazing read, if you're into that sort of stuff: http://www.nber.org/papers/w1822.pdf & http://www.jstor.org...=21103222398117 (free registration required. Go here if not interested in registering: http://www.biu.ac.il...ion 1985-86.pdf).

Israel, a country surrounded by enemies, a country always at war, can fix their economy within a matter of two years, then I think Argentina can too. Question is whether the politicians and unions here are willing to do that? I'm going to bet on NO since that means giving up selfish controls for a while to do something that's good for all.

Menemistas, Kirchneristas, CGT, and whoever else. They are all the same. Have been the same. Same loyalties, same "modelos", same "para todos" programs in different forms. Good luck getting this country out of the mess it has been in if you keep voting in the same boludo with a different hat on every single time.

 

[Rich One]

Being tied to the dollar is not the solution, you loose big capacity of manuevre from the Central Bank, you loose that important tool of monetary policy. It already happened for ten yearss, and we can see it now with the PIIGS and the Euro. Besides, where the sovereignty would be? We are different countries you know, every country should have their own currency, their own money, their own capacity to do whatever they want with that. Being tied to the dollar brought a lot of problems to Ecuador, theyve been wanting to get out for like 10 years and they cant.

Its just too grotesque the political and economic domination by the US Empire if we dollarize the economy. Its like assuming that we re in fact their colony.

Argentina if dollarized would be on the same straitjacket as Greece and Italy whose products are not competitive but can not devalue as before with the lira and dracma, ....!! not to mention Ecuador. Argentina devalues at 40 % p.a.